Donald Trump's security policy document presents a misguided view of the European Union. It claims that open-border policies and what it terms "woke" agendas represent an existential threat to the continent's identity. Yet, this perspective is based on a serious misreading of the reality. The actual challenge facing the EU is not cultural but technological and economic lag.
A Glaring Economic Divide Separating the US and Europe
The data reveal a stark contrast. Between 2008 and 2023, US GDP surged by 87%, compared to a paltry 13.5% growth for the EU. Over this period, European income per person dropped from over three-quarters to just half of the US level. Remarkably, even Mississippi now boasts a higher per capita income than several leading EU nations like Italy and France.
Currently, about 50% of the global 50 largest tech companies are American, while a mere four are European.
The Technological Shortfall: The Core Question
The growing economic gap is driven by superior efficiency gains in the United States, largely due to breakthroughs and higher total factor productivity. The scene of global tech leadership is overwhelmingly American. In the last five decades, hundreds of American startups have scaled into enterprises valued at over ten billion dollars, versus just 14 in Europe.
This disparity raises a pressing issue: In the race for future industries like semiconductors, AI, and fusion energy, where does the EU stand? Most analysts concede it is largely a two-horse race involving the US and China, with European nations starting at a significant handicap.
Root Causes of Europe's Technological Lag
Several key factors explain this technological divide.
- Venture Capital: The United States has a much more robust and more dynamic network for funding startups. Europe has yet to establish a genuine capital markets union, a factor that limits the growth potential of emerging companies.
- Bureaucratic Hurdles: Excessive and fragmented rules hamper European business. A American entrepreneur can launch a service under a single regulatory framework to access a market of over 330 million. The European Union, despite a bigger population size, is divided among 27 different national systems, creating huge internal barriers.
- Cultural Attitudes: Views on entrepreneurial failure vary greatly. In parts of Europe, a startup's collapse was historically viewed with stigma, whereas in the US, it is often considered a valuable lesson.
- Defense Spending: The United States enjoys a deeply integrated innovation pipeline linking defense and academia. Europe's chronic underinvestment in military capabilities has eroded its ability in breakthrough innovation.
The Road Ahead: Grounds for Hopefulness
In spite of these challenges, there are reasons for hope. European leaders are increasingly aware of the existential challenge and have begun to propose serious reform. Key analyses on European competitiveness and the single market highlight the necessity of major reforms.
Given appropriate incentives and rule changes, Europe's strengths could support far greater degrees of business-led breakthroughs.
The continent retains considerable advantages: high-quality workforce, excellent education systems, and premier research institutions. Alongside a large internal market and substantial household savings, these elements could trigger a surge of investment and entrepreneurship.
Importantly, even if the EU does not take the lead in creating cutting-edge technologies, it can still significantly increase economic output by implementing and tailoring advancements from elsewhere.
A Critical Juncture
Europe now faces a critical crossroads. To paraphrase a famous line, decline often happens "gradually and then suddenly". So far, Europe's technological decline has been gradual. But, without decisive action to address its deep-seated problems, today's slow erosion could turn into a sudden and irreversible loss of global economic relevance.
